Sunday, July 29, 2007

Cottage Ownership

On a beautiful Sunday like today, one can easily imagine how nice it would be to own a cottage on the lake. Not only would a waterfront cottage be a great place to unwind on the weekend, but it could eventually be my principal retirement residence and in the meantime, act as a potentially significant cash flow generator.

With this in mind, I picked up a copy of The Cottage Ownership Guide by Douglas Hunter since it is promoted as being the guide to how to buy, sell, rent, share, hand down and retire to your waterfront getaway.

Well, I must honestly say that this book definitely fits its billing! The book definitely covers all aspects of cottage ownership with special commentary about the unique aspects of ownership in Canada and the United States.

I'll share just a few of the many insightful tips mentioned in the book when looking for your ideal cottage:

  • Check the cottage association's newsletter and/or minutes of its annual general meeting for the latest news
  • Get in contact with the lake association or ratepayers' group (The Federation of Ontario Cottagers' Association maintains a list of groups in the province)
  • Obtain the lake's history of algae blooms (apparently, once a lake had experienced a bloom, the odds were 50-50 that it would have another) and any measures taken to control their reoccurence
  • Find out how much the water level changes
  • Is the property on a flood plain? (Lists for each province and territory are available online)
  • Where does the sun set?
  • Which way does the wind blow?
  • Is road access available year-round?
  • Is the road private or public? Who pays for its maintenance?
  • Do the neighbours rent out their cottage?
  • Get a well record created by a licensed driller
  • Is there a grandfather clause for zoning regulations?
  • Check the survey to see if there is a shoreline road allowance? If so, you don't own your waterfront, and that your deck and boathouse and maybe even your cottage are encroaching public land. You can usually purchase the road allowance from the municipality.
  • Check for other road allowances (like concession or sidelot) and restrictive covenants and easements
  • What are the permitted public uses for the shoreline in front of private property in your area?
  • Where does the waterfront end and the lake begin? ("In the common law of both Canada and the U.S., the furthermost limit of private shoreline property is considered to be the high-water mark (though some title deeds describe ownership extending to "the water's edge" or "the low-water mark"). Local regulations, for instance, may require a setback from the water's edge measured in relation to the high-water mark. And how is the high-water mark determined? From historic date drawn from observed water heights or, lacking that, by inspecting the shoreline for physical signs.")
  • Are there any limitations to construction, renovations or expansions?
The book also discusses taxes and how to reduce the 'buy-now, build-later tax hit.'

I have no problems recommending The Cottage Ownership Guide to anyone considering an investment in a cottage or waterfront property.

Saturday, July 28, 2007

Awful Times to Invest

A look at John Hussman's July 16th weekly market comment of a 'A Who's Who of Awful Times to Invest' brings attention to the following dates:

"December 1961 (followed by 28% market loss over 6 months)
January 1973 (followed by a 48% collapse over the following 20 months)
August 1987 (followed by a 34% plunge over the following 3 months)
July 1998 (followed abruptly by an 18% loss over the following 3 months)
July 1999 (followed by a 12% loss over the following 3 months)
December 1999 (followed by a 9% loss over the following 2 months)
March 2000 (followed by a 49% collapse in the S&P over the following 30 months)

The defining characteristics of these instances were:

1) price/peak-earnings multiple above 18
2) 4-year high in the S&P 500 index (on a weekly closing basis)
3) S&P 500 8% or more above its 52-week moving average (exponential)
4) rising Treasury and corporate bond yields

Depending on how we define the interest rate trends, we can include two additional historical instances of these conditions:
October 1963 and May 1996, both closely followed by 7-10% corrections.

One more instance completes the list: July 2007."

It will be interesting to see if this week's market downturn is the start of a much larger correction.

Wednesday, July 25, 2007

Naked Short Selling

A controversial article published in the Wall Street Journal shed some light on the concept of naked short selling. The article prompted Senator Bennett to raise the topic of naked short selling on the U.S. Senate Floor.
I doubt that anything will come out of this but perhaps a few more people are now aware of this loophole in our electronic marketplace.

Tuesday, July 24, 2007

Time to Load Up?

After the TSX Index dropping 400 points today, is this a buying opportunity or the early days of a major correction?

1 Year Chart:


According to Roma Luciw, "The TSX tumbled 400.17 points or 2.75 per cent to 14,068.16, its biggest one day drop since the big crash of 1987. But in those days, the Toronto index stood at about 3,200."

From today's chart, there was no real bounce back up leading me to think that there may be more to come on the downside. Almost all the stocks on my watch list took a major pounding today with some charts breaking down completely. It will be interesting to see how the market reacts tomorrow.

For future reference, the HBP 60 Bear+ ETF (HXD-T) was up 5.7% today.

Sunday, July 15, 2007

Power Vampires

While documentaries like An Inconvenient Truth and The Great Global Warming Swindle (watch Part 1 of 8 below) attempt to endorse or criticize (respectively) the theory that mankind is responsible for global warming, one thing is for certain: you can save a lot of money by doing a few simple things around the house to conserve energy.

The Carbon Buster's Home Energy Handbook: Slowing Climate Change and Saving Money reveals North America's best kept investment secret: that the highest rates of return can be found not at your bank but in your home. The book systematically analyzes costs and evaluates which measures yield the highest returns for the environment and the pocketbook. The Handbook is filled with ideas to reduce energy costs.

Here are a few things that I found particularly interesting:

The city of Lindas in Sweden built 20 terrace houses with excellent windows, better insululation, and an air-to-air heat exchanger. These features added about $7,000 to the cost. However, they were able to dispense with the heating system altogether, at a savings of $4,000. This leaves a net cost of $3,000 for the extra insulation, and a simple payback of under four years, and free heating for the remainder of the life of the house. More information about project's design can be found in this PDF file.

Ever wondered how much electricity an appliance actually consumes? Well you can use a Kill-A-Watt meter to determine it. For those of you living in Ottawa, you can borrow one of these meters from the Ottawa Public Library.

Solar ovens use concentrated sunshine to cook food. Apparently, you can buy fancy solar ovens for as much as $250 or you can build your own for as little as 20 bucks to give it a try.

By now, you're probably wondering why I titled this post 'Power Vampires.'

The handbook describes 'Power Vampires' as electrical devices that continuously draw power from your power outlets, even when not supplying any useful service. Those power adapters (black power bricks) you can find all over your house draw power even when the item is not in use. For example, even though a halogen desk lamp's bulb is rated at 20 watts, the total lamp consumption is 25 watts, since the power brick draws 5 watts. Over the course of a year, the lamp will consume more power while it's off than while it is on.
Your home can have numerous power vampires lurking: TV's, cable boxes, modems, satellite receivers, VCRs, DVD players, computers, cell phone chargers, battery chargers, night lights, etc. Any equipment that stays warm after it has been turned off for a while is most likely a power vampire as well.
The Handbook states that a recent study found that these vampires accounted for 5-20% of total power consumption, even exceeding the traditionally highest user (the fridge) in some homes. The simplest way to get rid of these power leechers is to unplug them when not in use. More convenient are power bars in which you can lay one or more of these bricks to rest.

The Carbon Buster's Home Energy Handbook: Slowing Climate Change and Saving Money is a good light read that is very reasonably priced and could save you hundreds if not thousands of dollars. It would be particularly useful for anyone thinking of incorporating some creative energy conserving techniques in their new home.

Corrupted Floppy Disk

From time to time, I might highlight a software program that I find really useful. In most cases, I'll only suggest freeware but in today's post, I'll recommend a handy shareware program that saved my day...

I was really shocked to find out that my computer wouldn't recognize my most important floppy disk yesterday after it was working fine just the day before. As always, I inserted the disk into the floppy drive and tried opening it up but to my surprise, it told me that the disk was not formatted and asked if it should format the disk. Hmmm, let me think.... NO!!!!

Now this floppy disk contained all my personal finance spreadsheets and of course, I didn't have a backup. Just my luck!

Tip #1: Always, make a regular backup of your important computer files.

So I started downloading a whole bunch of floppy disk recovery programs that I could find and just my luck, none of them could recover the three spreadsheets I was most concerned about. How typical, was that? And the funny thing was, each program was able to recover a different file.

Tip #2: When using file recovery software, try more than one program if you don't succeed the first time.

Without any luck, I called up a friend to see if he had any ideas. My luck had finally turned! He recently had a similar issue with his computer and bought Active@ File Recovery. So I went over to his place and gave it a shot, and it was able to recover everything. Sweet!!

This leads me to Tip #3: If all other file recovery attempts fail, try Active@ File Recovery.

Thursday, July 12, 2007

Silver Wheaton (SLW-T)

I tried out my brokerage's automated telephone trading system today and ended up investing in Silver Wheaton (SLW-T). Now, I must admit that I let my emotions affect my limit purchase price on this one as I've missed out on some pretty amazing trades so far this month due to being low limit prices and I wasn't going to miss out on this opportunity.

As you can see on the three-year weekly chart below, an ascending triangle has formed which would suggest a ~$20 target price if the current breakout continues in the weeks and months ahead.

I must admit that the target price is very optimistic but I've seen stranger things happen.

Background info: 100% of Silver Wheaton's revenue comes from the sale of silver. Having silver purchase contracts with five separate mines, the Company expects to sell approximately 15 million ounces of silver in 2007, growing to 23 million ounces by 2009. It also trades on the NYSE as SLW.

The closing silver bid /ask on Kitco was $13.09 / $13.13.
Silver Wheaton's closing price today was $14.83 on the TSX.

Wednesday, July 11, 2007

Automated Telephone Trading

Frustrated by not having the ability to adjust my stock limit orders to current market conditions via the web at the office, I did a little poking around on my discount brokerage's web site and discovered that they offer an automated telephone trading system to place trades, monitor current orders, and obtain account information amongst other things via a toll-free number.

This is great news! I should now be able to keep track of my orders during my breaks at work or when I'm away from my computer during my vacation.
As if I didn't think of this sooner?
Oh well, it's too late to do anything about it now.
But hey, at least I'm aware of a handy tool going forward!

Tuesday, July 10, 2007

Interest Rate Hike & The Big5

The Bank of Canada raised its key interest rate to 4.5 per cent, the first increase in more than a year, and said more rate hikes may be needed to dampen inflation.

Just for reference sakes, here's how the Big Five banks performed today:

+0.23% Bank of Nova Scotia

-0.01% CIBC

-0.39% Bank of Montreal

-0.43% Royal Bank of Canada

-0.70% TD Bank

Just my Luck

Boy oh boy... am I disappointed... a bunch of the stocks on my watch list are heading significantly higher and higher everyday for the past week or so and each day, I set prices to buy in at but they never get filled. A few others confirmed patterns that would signal a buy in my books but once again, I'm a bit too late :( They're at a price point now where the risk/reward ratio makes we a bit uncomfortable.

If only I had access to a trading system that would allow be to 'buy Stock X if it goes above $Y'?
If anyone is aware of a Canadian discount broker offering such a service, please let me know.

So now I'm in a bit of a pickle, do I continue to watch these stocks amass higher valuations and wait until they come back down (if ever); bite the bullet and purchase them at the market price at the opening (something I've told myself I would never do after getting badly burned several years ago); or set a limit price right around today's closing price and hope for the best once again?

When I've chased stocks in the past in similar situations and surely enough, I would finally get it. Just my luck though, it would be a major top and I'd then wait weeks, if not months, to break even.

Before I make my decision, I think I'll have to sleep on it tonight....

Monday, July 9, 2007

Stronger Loonie = Cheaper Wine

A few weeks ago, I posted a comment about how Canadians are getting ripped off thanks to our strong Canadian dollar. Well, today I ran across an interesting news story stating that the cost of some wines is set to drop in Quebec as the province's liquor board (the SAQ) adjusts its standard exchange rate used to buy wholesale European exports. The liquor board will adjust retail prices on affected products starting July 25th.

According to the article, "The Euro's value has dropped by 9.7 per cent against the Canadian dollar in recent months" so it will be interesting how much of those savings will be passed onto the consumer.

I'm not much of a drinker but I thought I'd pass along the news for those of you who live in Quebec or close enough to make the trip over to 'la belle province' for some potentially cheaper wine.

Sunday, July 8, 2007

Should I Invest in Fording Canadian Coal Trust?

So I started looking for potential income trusts to invest in my RRSP and came across this interesting two year chart for Fording Canadian Coal Trust (FDG.UN-T):

It looks like a very nice bottom forming with a potential $50 target based solely on the chart (if it can break the $40 mark). It is currently yielding 7.2%. I was initially very excited in finding such a pattern in the making (as I have seen this type of pattern fulfill itself many times and I have benefited from it a few times as well) but as I researched the company further, my gut feeling was telling me that I should watch this one from the sidelines.

First off, their quarterly distributions have fluctuated and dropped quite significantly recently ($1.40 in 2006 Q1, $1.00 - Q2, $0.80 - Q3, $0.95 - Q4, $0.65 - 2007 Q1 & Q2). Since I am looking for something with a steady (and hopefully, increasing distribution over time), it doesn't really fit the criteria I set for myself for my first ever income trust investment.

I also came across a recent analyst report that suggested that Fording was overvalued compared to its counterparts. Since I know nothing about any type of coal (let alone, metallurgical coal) I really have no clue if demand for this type of coal will increase going into 2008 as some 'experts' have suggested. Just another reason for me to stay away.

On the other hand, some have suggested that Fording could be taken over. This speculation has probably been one of the key drivers in the increase in share price recently.

Taking this all into consideration, I'm going to stick with my gut feeling on this one and look elsewhere for a place to park my RRSP dollars. It will be interesting to see how this one turns out.

FDG.UN closed at $35.88 on Friday.

Showtime for Gold Stocks?

Based on stories I've heard recently, gold apparently starts rallying during the summer months (typically in August) on a historical basis. Is it possible that gold mining stocks are finally going to start recovering?

One of my two gold mining stocks, Agnico-Eagle Mines (AEM-T), appears to have recently reversed its uptrend as illustrated in the chart below.

The second gold mining stock in my portfolio is Goldcorp (G-T). As you can see from the chart below, it hasn't convincingly broken out of its downtrend just yet

Although AEM looks tempting, I doubt I'll place any additional funds in these two gold stocks as I've had more success investing in other sectors. I believe every portfolio should have exposure to gold just in case the gold bugs are right but at this point in time, I am comfortable with my portfolio's weighting in gold. I see these two stocks as long-term holds and expect that they will be taken over one day. That being said, I might invest in another gold stock if I see an opportunity for a quick gain.

Kitco currently has a bid / ask price for gold of 652.50 / 654.00.

Thursday, July 5, 2007

Doubling Down & Then Selling Half

With all the mergers and acquisitions taking place recently, it might be intimidating to sell a potential takeover candidate while it's flying high.

At this point in time, I really don't see any of my holdings being in this situation (unfortunately) but as I scope the market looking for my next investment, I'm thinking that I should revisit a strategy I utilized to some extent last year. It involved establishing a position in a stock over one or two entry points, and then once it hit a point, at which I considered it reaching a short-term high, selling half of my shares to lock in my 'profits' while giving me the opportunity to earn more if it continued upward. This strategy would also protect me if the stock dropped as my break-even point would be that much lower while also providing me the possibility of investing the second half again at a lower price.

I can't recall why I deviated from this strategy this year... perhaps it had to do with not having the confidence I once had in investing so much (potentially double my normal weighting) in one company but if the opportunity presents itself, I'm definitely going to have to remember to give this a shot once again.

Monday, July 2, 2007

Jim Rogers Interview

Jim Rogers, author of Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market, had some interesting comments regarding agriculture, emerging markets, base metals, gold and water during his Bloomberg interview

TSX Correction Down to ~12,500?

In light of almost every 'professional' analyst saying that a correction on the TSX Index is overdue, I thought I'd take a look at its two-year chart and see what all the fuss was about.

It appears as though a short-term top has been made as a break up above its recent highs would be necessary for the uptrend to stay intact. The question now is will the index go sideways over the summer months or break down and test support levels. Without looking into it in greater detail, there appears to be some support around the 13,400 mark; if that fails the 12,000 to 12,500 might be tested. I suspect the test of the lower level would not occur until September or October since most major corrections that I recall occur during those months (I could be wrong about this as I'm just going from memory). Hopefully, it happens sooner than later so we can get it out of the way and continue going upwards from there.

I currently have about 70% of my holdings in cash. I doubt my cash component will stay that high over the summer months but I'd like to have at least fifty percent available for the potential big dip.

The TSX Index closed on Friday at 13,906.

Sunday, July 1, 2007

Market Timing

I was reading The (MIS)Behavior of Markets: A Fractal View of Risk, Ruin, and Reward and came across the following:

Market Timing Matters Greatly.
Big Gains and Losses Concentrate into Small Packages of Time.

"From 1986 to 2003, the dollar traced a long, bumpy descent against the Japanese yen. But nearly half that declined occurred on just ten out of those 4,695 trading days. Put another way, 46 percent of the damage to dollar investors happened on 0.21 percent of the days. Similar statistics apply in other markets. In the 1980s, fully 40 percent of the positive returns from the Standard & Poor's 500 index came during ten days - about 0.5 percent of the time... In the space of just two turbulent weeks in 1992, George Soros famously profited about $2 billion by betting against the British pound... Suppose big news has inflated a stock price by 40 percent in a week, more than twice its normal volatility. What are the odds that, anytime soon, yet another 40 percent run will occur? Not impossible, of course, but certainly not large. A prudent investor would do as the Wall Street pros: Take a profit."

This quote reaffirms my thoughts that market timing does indeed matter. One can make money several times over when trading a stock bounded by support and resistance levels instead of just once when buying and holding. All one needs to do is find such a situation and use it to your advantage. This, of course is easier said than done, but it will be definitely a pattern I will continue to keep an eye on and hopefully, take advantage of in the future.

2007.5 - Way Forward Plan

With the Ontario Teachers Pension Plan and its U.S. backers, Providence Equity Partners and Madison Dearborn Partners LLC, winning the BCE auction, many Canadian investors will now be looking elsewhere to place their hard-earned dollars with most eyes likely looking at other dividend paying stocks. It will be interesting which companies will benefit the most from this large move of capital. Will it be BCE's competitors like Rogers and Telus, the banks, or the once high-flying income trusts?

One of my main strategies going forward will be to take advantage of dips in high-quality Canadian dividend paying stocks in order to develop a portfolio with reliable and steadily increasing dividend payouts.

With my recent change in employers, I will have to make changes to my RRSP and pension accounts within the next couple of months. Hence, the second half of the year is the perfect time to focus my efforts on setting out on a clear direction for my RRSP. Until now, I have contributed to my non-work-related RRSP account to reduce my income tax payments but haven't touched those cash deposits. As a result, I have missed out on a great opportunity to have my RRSP grow in value. Although, I'm still considering my options, I'm leaning towards making RRSP investments in one or two income trusts, and possibly a high-yielding American dividend paying stock. I don't have as much wiggle room inside my RRSP as compared to my non-registered account so I'll have to more disciplined in my approach.

Happy Canada Day!